On 21 February 2022, the Full Court of the Federal Court of Australia delivered two judgments in the Second COVID-19 Australian Business Interruption Test Cases.

Five of the original ten proceedings appealed from Justice Jagot’s decision at first instance (Swiss Re International SE v LCA Marrickville Pty Ltd [2021] FCA1206) to the Full Court, which heard the appeal in November 2021.  The Full Court’s judgment was broadly in favour of insurers, largely dismissing the appeals of the policyholders (LCA Marrickville Pty Ltd v Swiss Re International SE [2022] FCAFC 17).  A copy of the Appeal Judgment is available online at LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17.

Judgment in the separate appeal of Star Entertainment Group Limited v Chubb Insurance Australia Ltd [2020] FCA 907 was also delivered yesterday (Star Entertainment Group Limited v Chubb Insurance Australia Ltd [2022] FCAFC 16), relating to the availability of a Catastrophe clause for a business interruption claim in the context of COVID-19.  The Full Court dismissed the appeal of the policyholder, Star Entertainment.  A copy of the Appeal Judgment is available online at Star Entertainment Group Limited v Chubb Insurance Australia Ltd [2022] FCAFC 16.

In Swiss Re v LCA Marrickville, Justice Derrington and Justice Colvin, in a joint judgment, predominantly endorsed the findings and reasoning of Justice Jagot at first instance, with some exceptions relating to the adjustment of claims.  In a separate judgment, Justice Moshinsky concurred with the findings and orders in the joint judgment and provided his own supplementary reasons. We provide some general observations below, but note that these comments are general in nature and each claim will be assessed on the basis of its circumstances.

One of the key findings is that, where a policy contains specific cover for claims arising out of disease, cover is limited to that clause.  In such circumstances, a claim for disease cover does not arise under other non-damage clauses including Prevention of Access, Catastrophe or Loss of Attraction clauses, as the disease clause was held to have set out the extent of the insurer’s indemnity for such a claim.

Some further uncontroversial findings were also made, including that the virus causing COVID-19 is not capable of constituting physical property damage.  Further, while Quarantine Act exclusions cannot be relied upon to exclude cover for COVID-19, Biosecurity Act exclusions can be applied by insurers to exclude cover for COVID-19, where applicable.

The Full Court most significantly departed from the first instance judgment in relation to matters concerning adjustment of claims. While these comments will only be applicable in the case of a covered claim, the Full Court held that JobKeeper and other third party payments are not to be considered in the claim adjustment process.

The appeal judgments in Swiss Re v LCA Marrickville and the Star Entertainment case provide important judicial guidance for business interruption claims under a wide range of common business interruption policy wordings, involving different sectors and locations within Australia.  The findings will be relevant to most business interruption claims assessed by insurers and, where relevant, the Australian Financial Complaints Authority.  It is important however to recognise that the availability of cover will ultimately turn on the specific policy wording issued to individual insureds, and their own factual circumstances.

The parties to Swiss Re v LCA Marrickville and the Star Entertainment case may seek Special Leave to appeal some or all of the Appeal Judgment to the High Court of Australia.  They have 28 days to do so.  Zurich will follow the reasons set out in the final judicial determination of the Second Test Case and Star Entertainment, and we will issue a further update if an application is ultimately made to the High Court of Australia.

Zurich will provide individual updates to policyholders with open COVID-19 business interruption claims, within the next 20 working days.

If you have any questions about the relevance of the judgments in Swiss Re v LCA Marrickville and the Star Entertainment case, or are unsure whether a policyholder might be entitled to make a claim under their business interruption policy, please contact our Claims Team or visit www.zurich.com.au. You can also visit the Insurance Council of Australia website for further information. https://insurancecouncil.com.au/bi-test-cases